The CPPIB is spending more on outside managers:
Five years ago, the investment arm of the Canada Pension Plan had total costs of $665-million, according to a new report from the Fraser Institute. In the CPPIB’s most recent fiscal year, overhead had ballooned to $1.4-billion.
To be sure, part of that increase reflected the swelling size of the fund, which is constantly taking in new money, thanks to pension contributions from millions of Canadian workers. But even against the backdrop of its surging assets, the CPPIB is not showing any tendency to rein in its spending. Its costs amounted to 0.58 per cent of its assets back in 2008-09; in the most recent fiscal year, they stood at 0.84 per cent.
…
The fund likes to focus attention on its relatively modest operating expenses. A more realistic accounting, though, has to encompass other costs, such as hiring external investment managers and the expenses involved in actually implementing the fund’s strategies.Those costs are now nearly twice as large as the fund’s operating expenses, according to the report’s authors, Philip Cross and Joel Emes. Much of the additional outlay reflects payments to external money managers, which have soared from $25-million six years ago to $782-million last year.
The Fraser Institute’s news release links to the study, titled Accounting for the True Cost of the Canada Pension Plan, which notes that the CPPIB’s assets under management are about $183-billion.
The CPPIB is making a horrible mistake in going to outside managers. Assiduous Readers will remember that I believe that it is possible to outperform benchmarks – any benchmark – over the long term, and that the reason for this is that most investors – including most professionals – are idiots. At least when it comes to actual investing, they’re idiots. They’re really, really good at sales!
In order to outperform, you need a dedicated staff and this staff has to be completely focussed on the nitty-gritty of investment analysis. The organization must have no sales exposure at all if it is to be successfule – which means that the organization must run its own money and only its own money. This necessarily means that consistent outperformance is restricted to organizations with huge amounts of assets, but that’s life. The moronic proposals for an Ontario superfund (discussed on April 21, 2009 and elsewhere on PrefBlog) will lead to a change of culture in the superfund management, from a culture of returns, returns returns! to a culture of clients, clients clients! which are polar opposites with respect to the personalities of the individuals concerned and with respect to the effect on investment performance.
CalPERS is run on the hub and spoke model. Its performance is a disaster. The UofT retirement fund is hub-and-spoke – and it’s a disaster. When you run an investment organization according this model, you are paying for salesmen to have lunch with each other. We are going to pay dearly for the CPPIB’s increasing appetite for good investment stories.
CU Inc. issued long paper today:
CU Inc. announced today that it will issue $1,000,000,000 of 4.085% Debentures maturing on September 2, 2044, at a price of $100.00 to yield 4.085%. This issue was sold by RBC Dominion Securities Inc., BMO Nesbitt Burns Inc., TD Securities Inc., Scotia Capital Inc. and CIBC World Markets Inc. Proceeds from the issue will be used to finance capital expenditures, to repay existing indebtedness, and for other general corporate purposes of ATCO Electric Ltd. and ATCO Gas and Pipelines Ltd.
The company has a PerpetualDiscount outstanding, CIU.PR.A, which has a 4.60% coupon and is bid at 22.96 to yield 5.02%. Call it a round 5% for luck. This implies the interest-equivalent yield for CIU.PR.A is 6.5%, which, given the number on the bond issue, imply a Seniority Spread for this company of about 240bp.
It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts gaining 1bp, FixedResets off 7bp and DeemedRetractibles up 6bp. Volatility was average. Volume was a little low, although Fortis issues got a bit of boost from the new issue announcement.
PerpetualDiscounts now yield 5.13%, equivalent to 6.67% interest at the standard equivalency factor of 1.3x. Long corporates now yield a little under 4.2%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 250bp, unchanged from the figure reported August 27.
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
|||||||
| Index | Mean Current Yield (at bid) |
Median YTW |
Median Average Trading Value |
Median Mod Dur (YTW) |
Issues | Day’s Perf. | Index Value |
| Ratchet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.2081 % | 2,638.2 |
| FixedFloater | 4.15 % | 3.40 % | 26,817 | 18.57 | 1 | 0.0000 % | 4,178.5 |
| Floater | 2.91 % | 3.07 % | 49,175 | 19.49 | 4 | 0.2081 % | 2,728.1 |
| OpRet | 4.05 % | -0.52 % | 93,749 | 0.08 | 1 | 0.0000 % | 2,726.0 |
| SplitShare | 4.28 % | 3.75 % | 117,407 | 3.95 | 5 | 0.3189 % | 3,158.4 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0000 % | 2,492.7 |
| Perpetual-Premium | 5.46 % | -0.92 % | 78,991 | 0.08 | 20 | -0.0726 % | 2,439.1 |
| Perpetual-Discount | 5.22 % | 5.13 % | 110,281 | 15.23 | 16 | 0.0080 % | 2,607.8 |
| FixedReset | 4.24 % | 3.69 % | 181,524 | 8.56 | 74 | -0.0670 % | 2,568.9 |
| Deemed-Retractible | 4.99 % | 1.89 % | 106,877 | 0.23 | 42 | 0.0551 % | 2,567.7 |
| FloatingReset | 2.63 % | 2.03 % | 79,370 | 3.77 | 6 | -0.0590 % | 2,524.2 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| CIU.PR.C | FixedReset | -2.05 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-03 Maturity Price : 20.52 Evaluated at bid price : 20.52 Bid-YTW : 3.68 % |
| FTS.PR.G | FixedReset | -1.63 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-03 Maturity Price : 23.14 Evaluated at bid price : 24.69 Bid-YTW : 3.69 % |
| IAG.PR.A | Deemed-Retractible | 1.00 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.16 Bid-YTW : 5.53 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| MFC.PR.M | FixedReset | 170,355 | Recent new issue. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-12-19 Maturity Price : 25.00 Evaluated at bid price : 25.11 Bid-YTW : 3.87 % |
| FTS.PR.J | Perpetual-Discount | 151,305 | Nesbitt crossed 150,000 at 24.18. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-03 Maturity Price : 23.77 Evaluated at bid price : 24.15 Bid-YTW : 4.93 % |
| ENB.PR.P | FixedReset | 103,460 | Scotia crossed 50,000 at 24.45; RBC crossed 50,000 at the same price. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-03 Maturity Price : 22.98 Evaluated at bid price : 24.40 Bid-YTW : 4.08 % |
| TD.PR.O | Deemed-Retractible | 102,199 | TD crossed 100,000 at 25.28. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-10-31 Maturity Price : 25.00 Evaluated at bid price : 25.23 Bid-YTW : 1.89 % |
| BAM.PR.P | FixedReset | 89,425 | Indicated for redemption September 30. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-10-30 Maturity Price : 25.00 Evaluated at bid price : 25.40 Bid-YTW : 3.08 % |
| FTS.PR.K | FixedReset | 60,570 | RBC crossed 25,000 at 24.95. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-09-03 Maturity Price : 23.16 Evaluated at bid price : 24.88 Bid-YTW : 3.62 % |
| There were 27 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| RY.PR.F | Deemed-Retractible | Quote: 25.65 – 26.15 Spot Rate : 0.5000 Average : 0.3186 YTW SCENARIO |
| PWF.PR.A | Floater | Quote: 20.52 – 20.99 Spot Rate : 0.4700 Average : 0.3711 YTW SCENARIO |
| BAM.PR.T | FixedReset | Quote: 25.41 – 25.65 Spot Rate : 0.2400 Average : 0.1713 YTW SCENARIO |
| GWO.PR.H | Deemed-Retractible | Quote: 24.23 – 24.45 Spot Rate : 0.2200 Average : 0.1604 YTW SCENARIO |
| GWO.PR.I | Deemed-Retractible | Quote: 22.67 – 22.89 Spot Rate : 0.2200 Average : 0.1642 YTW SCENARIO |
| BNS.PR.N | Deemed-Retractible | Quote: 26.05 – 26.32 Spot Rate : 0.2700 Average : 0.2167 YTW SCENARIO |